Seres Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. The company develops microbiome-based therapeutics and has no product-sale revenue. Its lead candidate, SER-109, was under FDA review for recurrent C. difficile infection (CDI).
Financial performance
| Metric (USD millions, except per-share data) | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | 3.4 | 126.7 | 6.2 | 137.7 |
| Research and development expense | 43.1 | 39.9 | 126.7 | 105.1 |
| General and administrative expense | 18.4 | 19.6 | 57.3 | 48.8 |
| Operating income (loss) | (59.1) | 68.4 | (178.2) | (15.1) |
| Net income (loss) | (60.0) | 68.2 | (181.4) | (15.6) |
| Basic and diluted EPS | $(0.49) | $0.74 / $0.72 | $(1.77) | $(0.17) |
- The sharp revenue decline chiefly reflects the $131.3 million license revenue recognized in Q3 2021 when the SER-109 license transferred to Nestlé under the 2021 agreement. 2022 revenue was collaboration revenue, not product sales.
- For the first nine months, operating cash used was $175.9 million, versus $58.6 million provided in 2021. Investing activities provided $76.5 million and financing provided $125.0 million; cash, cash equivalents and restricted cash ended at $213.6 million.
- At September 30, cash, cash equivalents and investments totaled $233.0 million. Current assets were $247.5 million and current liabilities $81.8 million. Management expected available cash and investments to fund operating expenses, capital spending and debt service for at least 12 months from issuance of the statements.
- Outstanding Hercules facility principal was $50.0 million; carrying value was $50.9 million. Interest is the greater of prime plus 6.40% or 9.65%. Total liabilities were $244.3 million; accumulated deficit was $795.7 million.
- Margins are not meaningful indicators of product economics: there were no product sales and reported revenue primarily reflects collaboration accounting. The prior-year quarter included a large one-time license transfer revenue.
Material changes versus the prior comparable periods
- Q3 operating results shifted from income to loss, primarily because the 2021 quarter included substantial upfront license revenue; Q3 2022 operating expenses rose $4.2 million year over year.
- Nine-month R&D expense increased $21.6 million, chiefly from higher personnel costs and SER-109 spending, partly offset by lower SER-287 costs. G&A increased $8.5 million, including increased personnel and facility-related costs, partly offset by lower professional fees.
- In July 2022, Seres raised approximately $96.7 million net in a registered direct offering of 31.7 million shares at $3.15 per share. Common shares outstanding rose to 124.4 million at quarter-end from 91.9 million at December 31, 2021.
- Operating cash flow turned materially negative, while financing proceeds included the equity offering and $27.6 million net proceeds from the amended credit facility.
Outlook, developments and risks
- The FDA accepted the SER-109 BLA for Priority Review, with a PDUFA target action date of April 26, 2023. Seres planned a launch with Nestlé Health Science affiliate Aimmune soon after approval. Approval and launch timing remain uncertain.
- Seres reported that the SER-109 Phase 3 ECOSPOR III study reduced CDI recurrence versus placebo; it also cited confirmatory safety and recurrence results from ECOSPOR IV. These are clinical findings, not a guarantee of approval or commercial success.
- SER-155 was being evaluated in a Phase 1b study for patients undergoing allogeneic stem-cell transplantation. The filing, signed November 2, also reported cohort 1 enrollment completed in November and anticipated initial safety and pharmacology data in early 2023.
- Seres discontinued the planned second cohort of the SER-301 Phase 1b study in April 2022 after preliminary first-cohort data showed no clinical remissions, despite engraftment and pharmacological signals. It continued analyzing UC-program data to inform next steps.
- The company expects continued losses and says it will need additional capital beyond its stated 12-month runway. It cautions that estimates depend on assumptions and capital may be used sooner than expected.
- Manufacturing commitment: the Bacthera agreement provides for at least CHF 240 million (approximately $262 million) over its initial term, including construction and operating fees. Manufacturing build-out, supply, regulatory, trial, and commercialization execution are significant risks.
- The Hercules facility is secured by substantially all assets other than intellectual property and includes a conditional liquidity covenant beginning June 15, 2023. A $25 million additional tranche is tied to FDA approval of SER-109 by December 15, 2023; another tranche of up to $25 million requires lender approval and other conditions.
- Other risks include dependence on Nestlé collaboration arrangements, uncertain milestone payments, clinical and regulatory outcomes, third-party manufacturing and donor-material supply, competition, and future financing needs. The filing disclosed an ongoing IRS examination of 2018 R&D tax credits and an appeal in a European patent opposition; no legal-contingency liabilities were accrued.
Important facts for investors to verify
- Progress and FDA action on the SER-109 BLA by the April 26, 2023 target date, including any labeling, manufacturing, or post-approval requirements.
- Actual cash burn, runway, financing needs, and potential dilution; the quarter-end share count and outstanding options/RSUs should be considered alongside the July equity raise.
- Hercules debt terms, covenant status, repayment and end-of-term charges, and whether additional borrowing tranches become available.
- Bacthera construction and manufacturing milestones, total expected costs, and Seres’ ability to secure adequate commercial supply.
- Further SER-155 data and the company’s next steps for UC programs following the SER-301 cohort decision; also monitor collaboration milestones and Nestlé’s commercialization commitments.